Does 7 Brew allow franchisees to own less than 3% of publicly-traded shares of a Competitive Business?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
- (1) have any direct or indirect, controlling or non-controlling interest as an owner whether of record, beneficial, or otherwise—in a Competitive Business (defined below), wherever located or operating, provided that this restriction will not prohibit ownership of shares of a class of securities publicly-traded on a United States stock exchange and representing less than three percent (3%) of the number of shares of that class of securities issued and outstanding;
- (2) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, wherever located or operating;
- (3) directly or indirectly loan any money or other thing of value, or guarantee any other person's loan, to any Competitive Business or any owner, director, officer, manager, or employee of any Competitive Business, wherever located or operating;
- (4) divert or attempt to divert any actual or potential business or customer of the Store to a Competitive Business; or
- (5) solicit other franchisees, or use available lists of franchisees, for any commercial purpose other than purposes directly related to the Store's operation.
The term "Competitive Business," as used in this Agreement, means any (a) business that derives more than twenty-five percent (25%) of its revenue from selling coffee, or (b) business granting franchises or licenses to others to operate the type of business described in clause (a), other than a 7 BREW Store operated under a franchise agreement with us.
Source: Item 22 — CONTRACTS (FDD pages 82–83)
What This Means (2025 FDD)
According to 7 Brew's 2025 Franchise Disclosure Document, franchisees are permitted to own less than 3% of publicly-traded shares of a Competitive Business. Specifically, the franchise agreement does not prohibit ownership of shares of a class of securities publicly-traded on a United States stock exchange, provided that such ownership represents less than three percent (3%) of the number of shares of that class of securities issued and outstanding. A "Competitive Business" is defined as any business that derives more than 25% of its revenue from selling coffee, or any business granting franchises or licenses to others to operate such a business, excluding a 7 Brew store operated under a franchise agreement with 7 Brew.
This allowance provides a degree of financial flexibility for 7 Brew franchisees. It means a franchisee can invest in publicly-traded competitors to a limited extent without violating the franchise agreement. This could be a way to diversify their investment portfolio or participate in the broader coffee industry's growth. However, the ownership stake must remain below the 3% threshold to avoid being considered a conflict of interest under the terms of the franchise agreement.
It is important for prospective franchisees to understand this clause in the context of the broader agreement. While owning a small percentage of a competitor's stock is permitted, franchisees are still bound by other restrictions, such as not operating a competing business within a certain radius of their 7 Brew location, as detailed elsewhere in the FDD. Franchisees should consult with a legal and financial advisor to fully understand the implications of this clause and how it fits into their overall investment strategy.